AngloGold Ashanti Ltd., the third-biggest producer of the metal, said profit rose with output in the first quarter after strikes ended.
Accordding to Bloomberg from South Africa, Adjusted headline earnings, which exclude one-time events such as asset sales, climbed to $113 million, or 29 cents a share, from $19 million, or 5 cents, in the previous quarter, the Johannesburg-based company said on Monday 13th in a statement.
New AngloGold Ashanti CEO Srinivasan Venkatakrishnan (Venkat), who is confident of weathering the gold storm, told journalists at the company’s presentation of six-times-better quarter-on-quarter earnings that the cost-cutting would amount to $100/oz savings in 18 months.
“We appreciate that the gold industry is going through tough times right now. But let me tell you one thing, when the going gets tough, the tough will get going,” Venkat, who took over the reins of the company this month, promised.
“The stronger performance relative to the previous quarter reflects the recovery from the strike action at the South Africa operations which hampered production towards the end of last year,” AngloGold said in the statement.
Labor disruption last year hurt gold and other mining companies after spreading from the platinum industry, costing the economy 10.1 billion rand ($1.1 billion) in lost output, according to the National Treasury. In the wake of the worker unrest and plummeting gold prices, AngloGold is reviewing expenses and expansion projects and expects to sell assets.
“The focus here is going to be on better cost control, cost rationalization across the portfolio, in particular in terms of corporate costs, exploration and capital rationing,” Chief Executive Officer Srinivasan Venkatakrishnan said during a conference call with journalists in Johannesburg quoted by Paul Burkhardt of Bloomberg from South Africa.
Bear Market
According to Miningweekly.co.za, the company is also tightening up its exploration and corporate expenditure, and is targeting more capital expenditure (capex) savings across the regions, in addition to last year’s $500-million capex budget reduction to $2.1-billion.
According to Bloomberg, Bullion is having its worst start to a year since 1982, dropping 14 percent since Jan. 1 and slumping into a bear market in April. AngloGold estimates that its production will rise to 4.1 million to 4.4 million ounces this year from 3.94 million ounces in 2012 as new projects come on line.
The company’s Tropicana venture in Western Australia is on schedule for first production in the fourth quarter, with annual output forecast at 470,000 to 490,000 ounces, a shareholder presentation shows. The Kibali mine in the Democratic Republic of Congo is also due to produce its first gold in 2013.
Total output advanced to 899,000 ounces in the first quarter from 859,000 ounces in the previous three months, according to the company, whose largest global competitors are Barrick Gold Corp. and Newmont Mining Corp. Second-quarter volumes are forecast to reach 900,000 to 950,000 ounces.
AngloGold said its Mongbwalu project in the DRC was suspended as the economics “just didn’t work,” according to Executive Director Tony O’Neill. “The gold is in deposits that are reasonably small and really make it difficult to get scale, so with current gold prices you haven’t got many options,” he said in Johannesburg. License renewals are due in 2014 and talks with the government will determine what happens next, he said.
Colombia, Namibia
In Colombia, AngloGold is looking to bring in a partner, while the sale of its Namibian Navachab mine should be completed by the end of the year, Venkatakrishnan said. The CEO, also known as Venkat, was appointed to the top job this month after Mark Cutifani quit to lead Anglo American Plc.
The Mongbwalu project area in the Democratic Republic of Congo (DRC) has been suspended, expenditure at Sadiola in Mali has been slowed and the Mine Waste Solutions uranium project in South Africa has been reconfigured.
Options on taking on a partner in Colombia – regarded as one of two game-changers along with South Africa’s deep-mine technology – would be considered in order to prevent excessive 2014 cash generation from flowing to the South American investment destination.
“We will be decisive and delivery will be critical,” said Venkat quoted by Miningweekly.co.za.
On the one hand, the gold major’s former CFO is “focused on every single cent going out of the company” and on the other, he going all out to bring in another 500 000 oz/y of profitable gold into the mix soon from the Tropicana project in Australia, Kibali in the DRC and Cripple Creek & Victor in the US.
Quarter-on-quarter corporate costs have come down 21% to $64-million, exploration is down 36% to $79-million, cash costs are down 8% to $894/oz and capex has been reduced 39% to $512-million, half of which is expansion capex.
Cost-reduction initiatives across the group include nickel-and-dime skimping, for example, photocopying and paper-clipping quarterly publications rather than sending them out to be printed: “It does the job and it’s much cheaper,” Venkat told Mining Weekly Online.
According to Bloomberg, John Paulson, whose hedge fund is the largest investor in AngloGold, has said the company might increase in value if it were to split its South African business from its international units. The proposal was rebuffed by the country’s government, three people with knowledge of the matter said last month. Gold Fields Ltd., another South African miner in which Paulson has invested, separated most of its domestic assets into new company Sibanye Gold Ltd. this year, while retaining development projects.
“If you look at the recent corporate finance transaction that took place and we’ve been watching how the share prices have performed, the value uplift has not been compelling,” Venkat said on Monday 13th, referring to the Gold Fields spinoff. “Free cash-flow generation, that’s really the focus at this stage.”
Gold Fields has dropped 34 percent in Johannesburg trading this year, while AngloGold has sunk 36 percent. AngloGold rose 0.6 percent to close at 169.14 rand on the 13th.
“The operating environment is indeed tough. We’re going into a round of wage negotiations, still working through the production issues at Obuasi in Ghana and facing higher South African winter power tariffs,” Venkat said.
On the plus side for the second half of this year are an expected 115 000 oz from Tropicana, a ramp-up at Geita in Tanzania and the accessing of the crown pillar at Sunrise Dam in Australia.
Executive director Tony O’Neill reported that the decline being put in place at Obuasi bypassed most of the old legacy infrastructure, accessed new orebodies and put the generation of gold and revenue from underground firmly on the agenda.
“Even at $1 300/oz gold, this remains a very, very valuable project. With the decline, we think this is the final key to unlock the value for the project,” O’Neill added.
AngloGold’s mines in the Americas performed best in the quarter, with Argentina the stand-out.
The new deep-mine technology in South Africa was a potential game-changer for all the mines with similar orebodies, including platinum mines.
Good drilling and backfilling progress had been made in the last six months and the challenge was to unite all the independent activities of the technology into a consolidated system “aggressively”, so that it could be included in production forecasts.
It had begun to work at Tau Tona and it would be extended to the other mines at a relatively low $30-million investment for the reward received.
BALANCE SHEET
The balance sheet remains robust with $3.4-billion of liquidity available to draw on and the dividend has been maintained at 50c a share.
Venkat reported that the debt maturity due to arise in May 2014 had been backstopped with a term facility from banks and there would be no issuance of equity-linked instruments to refinance the convertible loan.
“So those shorts in our stock better get the hell out of there soon,” he added.
There would be no imminent maturity of any major facility that could not be funded by cash resources.
Net debt to earnings before interest, taxation, depreciation and amortisation remained at 1.06 times, which was well within the three-times limit.
FUTURE STRATEGY
The strategy was to maximise sustainable free cash flow from a quality portfolio and to allocate capex in a manner that ensured continued free cash.
Turnaround mines would be funded with an extremely tight leash and mines that were deemed unsuitable would be harvested for cash, fixed or sold.
The company’s own cheque book would be used to extract value out of the portfolio.
“It’s quite important that we don’t do what the accounts tend to do and that is ‘toe-cutting’. You’ve got to ensure that you preserve the long-term viability of the business,” said Venkat.
On South African assets being hived off into a separate company, he said South Africa remained a “huge cash-generative engine”.
“The storm we’re in, in South Africa, will pass and I’m pretty certain that, at the right time, the investors will come back again,” he added.
By Franck Fwamba/MNM, Bloomberg, Miningweekly.co.za
